Barton County democrat. [volume] (Great Bend, Kan.) 1885-1915, 1887-06-02

The Government Investigation OF the Pa
cific Roads May Lead to n Great Suit.
NEW YORK, May GA law suit involv-
ing several millions of dollars is about to be
commenced against Jay Gould and Russell
Sage as trustees of the consolidated mort
gage of the Kansas Pacific railroad by the
foreign bondholders of the bonds issued
under the mortgage Certain facts were
elected during the recent examination into
the affairs of the Pacific railroads by the
United States Pacific Railway Commission
which had long been suspected by inter-
ested parties, but which they were unable
to prove.
Among the spectators during the exam
ination was William II. Delaney, attorney
for Frankfort and Amsterdam holders OF
Kansas Pacific bonds valued at 5000, 600,
and the circumstances upon which they
base their cause of action are as follows:
Prior to 1879 the Kansas Pacific road, be-
sides its stock and floating debt, was loaded
down with a great variety of bonds like the
land grant bonds, first mortgage bonds,
income bonds and others, drawing different
rates of interest, and covering different
sections of the road. These clashing in
terests were so diverse and complicated
that they threatened disaster TO the diff
ferent creditors. In order to simplify
matters a consolidated mortgage was
agreed upon, with Jay Gould and Russell
Sage as trustees, which would wipe out all
the other classes of securities and place all
creditors on an equal footing. At the time
this consolidated mortgage was made the
Kansas Pacific road owned 10000 shares of
stock of the Denver Pacific railroad, worth
at par 500 per share, but at this time OF no
great market value. These shares were
included in the list OF properties covered
by the great mortgage and were part of the
assets that gave the mortgage a value
II. l. -. In%A h.
Kansas Pacific and Union Pacific roads
was about to be carried into effect. Gould,
Sage and Sidney Dillon were directors in
both roads at the time and conversant with
all the facts and circumstances relating 10
the consolidated mortgage and the pro-
posed consolidation of the two roads. One
day, about January 1, 1879, as the story
runs, these three gentlemen were in the
office Of the Kansas Pacific railroad at IS
Broadway, when Mr.. Dillon wrote a letter
to Messrs. Gould and Sage as the trustees
of the consolidated mortgage, asking
them to release from the lien OF
the mortgage the 200 shares of Denver
Pacific stock, and handed the modest re-
quest to the trustees. MeSSrS. Gould and
Sage then sat down at the same desk that
Dillon had occupied; and on letter paper
bearing the same heading as Mr.. Dillon's,
ndited reply declining to release the
stock as requested on their own response
bility, but suggesting that an action should
be brought against them asking for the re-
lease of the stock as desired, to which they
would make no serious defense. An attor-
ney was consulted the same day and he
promptly drew up and served a COM
plant on the defendants, Gould and
Sage. Ordinarily at least twenty
days would have elapsed before an answer
would be served, but in this unique case an
answer was served on the following day,
and an application made to Judge Donohue
for the appointment of II. H. RuggleS as
referee, and within the next two OF three
days so-called trial was had before the
referee, during which Sidney Dillon tes-
titled that 30 900 shares of the Denver Pa
cifc stock were worth but S200,000 or
800, 900, though their face value was
s., 100000
A report was made in accordance with |
this testimony. The report was confirmed |
and judgment entered and the 50, 10000 !
worth of stock released from the lien OF the |
mortgage and transferred to Gould, Sage |
and Dillon as individuals. The whole law |
suit, involving so large sum OF money, |
was conceived, commenced and ended in
side of week. On the same day, or the |
day after the suit was ended and the stock |
transferred, the consolidation of the Kan |
sas and Union Pacific railroads was con- |
and shortly afterward the Den |
yer Pacific stock became worth It's face |
value. Had that stock remained under the |
lien of the consolidated mortgage each |
bond issued under that mortgage would |
have been worth its pro rata share on 3d. |
100000. This sum, together with the ac-
crued interest would be about $5,OOO,O 900. |
1t is to secure a proportionate share OF |
this that the foreign bondholders propose |
to bring their suit against Gould and Sage. |
claiming that they have been wrongfully |
deprived of that amount, and that court |
of justice was Improperly used to give color |
of legality to the robbery.
Just what number of bondholders or |
what amount will join in the present pro-
posed action is not determined, but enough |
have signified their intention to become |
parties plaintiff to make one of the great |
law suits of the day. The total amount of
bonds issued under the consolidation mort |
gage was about Sl5, 600, Co., a great many of |
which were 1oatcd in Frankfort and Am |
and some in London.